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Type:

E-book, Lesson Plan

Description:

Students will investigate unforseen costs of car loans and/or house loans. They will then evaluate the economics of decision making, the ramifications of their choices, and options available to them. Students will compute costs and savings for a car and/or house loan with or without added insurance costs.

STUDENTS WILL

Determine the cost of several loans, with and without added insurance.

Determine the best personal option for a hypothetical loan.

INTRODUCTION

Present the following anecdote to the students: An S & l institution advertised a $10,000 new car loan at 7.99% APR with 48 monthly payments of $269.34. Jones read the ad and practiced using the present value formula for annuities, trying to come up with figures to match the advertised monthly payment.

Jones soon realized that the formula would not yield a matching payment of $269.34. He then called the institution to find out how people there had arrived at their figures. He was a little surprised to find that certain up-front fees and more than $20 per month for life and disability insurance had been figured into the payment! What was going on in this case? Why didn't the number Jones calculated match the number advertised by the S&I?

NOTE: The "Just in Case Cases" activity could be done in class as a discussion starter and an introduction to the "time value of money" concept.